[austenallred]

A $220m+ acquisition is absolutely a home run, and likely a win for all involved, even with $80m raised.

FB and WhatsApp are once-in-a-decade type returns. In baseball parlance perhaps a World Series winning grand slam or a perfect game. You needn’t exit for $19B for it to be a great outcome.

[bspn]

For the founders this represents a very nice exit but for investors, not so much. It obviously depends on when they entered, but later stage investors aren't likely to be making much (if anything) off the exit. Getting money back from a struggling investment is always nice, but I doubt the VCs will be touting this as one of their success stories in the quarterly report.

[austenallred]

Later stage is also a different risk profile. They don’t need 100x returns, and their investment is very de-risked compared to early stage. It’s a different game, and returning 2x consistently is solid performance.

[elvinyung]

I mean, don't common stockholders (i.e. all employees) still basically get shafted in a down acquisition?

[amorphid]

Say investors own 60% of the company. In an acquisition worth $220 million, 60% of the company would be worth $132 million. It's common for investors to have a 2x liquidation preference, meaning they get up to twice their money back before anyone other shareholders get $1. $80 million invested means investors get $160 million, more than the $132 million. $60 million would be left over for the founders and employees. There's enough money there to be a life altering amount for many people.

[spullara]

If you see a 2x liquidation preference on a term sheet in this market I would be really surprised. Virtually every term sheet that isn't the one before an IPO or a recap will be non-participating preferred.

[amorphid]

I confess I'm not an M&A/finance/VC-funding wizard. Would you mind giving an example describing the scenario you describe?

[spullara]

Non-participating preferred means that either you are the first to get money off an exit up to the amount of your investment OR you convert to common and get your ownership percentage. For example, say you invested $10m into a company at $30m post and then owned 33%. If the company sold for $20m, you would get $10m and the common would split the remaining $10m. If the company sold for $30m you would get your $10m back either way. If the company sold for $100m, you would convert to common and get $33m.

[tommynicholas]

2x liquidation is not standard anymore - 1x is far more likely. This was an "up" acquisition too so it's possible they exceeded 2x for most if not all investors.

[austenallred]

It’s not a down acquisition...

[tommynicholas]

It's not a down acquisition

[SeoxyS]

If you think a $220M acquisition is a home run for anyone involved, you don't understand the Venture model. Liquidation preferences means that investors are probably getting around 1x their money back, which will be considered a failure in their portfolio. They need a 10-100x win to pay for all of the losses. Common stock holders will be seeing less than their pro-rata allocation of the acquisition price (e.g. if you own 1% of common stock, you are getting less than 2.2M).

The top line acquisition price is probably the full package including costs and retention bonuses, not all of which will be paid out. The only people who will get something for their time are the founders, but they're probably looking at low to mid 8 figures at best.

[austenallred]

If we say 1x preference, there’s still at least 160m left over. Early investors that need a 10x return were investing in 2009, so let’s say 3m valuatiom? They might not get 100x, but they’re going to return way above 10x. The investors putting in in later rounds don’t need to see 100x returns, as their investment is more derisked, and series C+ is a very different game.